In 1987, the federal government allowed states to choose the speed limit on interstate highways, freeing them from the 55 mph yoke imposed in 1974. A study of driving in twenty-one states that revised their speed limits up to 65 mph found that drivers increased their average speed by 3.5 percent. This both shortened their commutes and increased their chances of suffering a fatal crash. The researchers calculated that for each life lost, drivers were saving about 125,000 hours in shorter commutes. If each hour were valued at the prevailing wage, the drivers saved $1.54 million, in 1997 dollars, for each additional death.
In the 1960s, the American economist Thomas Schelling suggested using people’s willingness to pay for safety to determine the price tag they put on their lives. “Proponents of the gravity of decisions about life-saving can be dispelled,” he wrote, “by letting the consumer (tax-payer, lobbyist, questionnaire respondent) express himself on the comparatively unexciting subject of small increments in small risks, acting as though he has preferences even if in fact he has not. People do it for life insurance: they could do it for life-saving.”
A study of parents’ willingness to buy bike helmets for their kids concluded they valued their lives at anywhere from $1.7 to $3.6 million. An analysis of how home prices drop the nearer they are to a polluted Superfund site concluded homeowners were willing to pay up to $4.6 million to avoid the risk of getting cancer. Another way to measure life’s value is to look at people’s choice of jobs, deducing the value of life from the fact that riskier jobs pay more: say a worker accepted $100 more per year to take a job that increased his risk of death by one in 100,000. An economist would conclude from this that the worker valued his life at 100,000 times $100, or an even $10 million.
These techniques have gained traction in many countries to determine the costs society is willing to bear to avoid injuries and deaths. With their appeal to citizens’ own preferences they have a more democratic flavor than calculations based on economic loss or other objective criteria. If the Department of Transportation determines that Americans are willing to pay no more than $5.8 million to prevent death in a traffic accident, it can make a reasonable case against spending more than $5.8 million for each life it expects to save through road improvements that would reduce the risk of fatal crashes.
The Department of Agriculture used to value life much the way the 9/11 fund did, tallying lost productivity from premature death. But in the 1990s it switched its metric to value life according to people’s willingness to pay. Today, it has a nifty calculator where one discovers that 1.39 million cases of salmonella that afflict the United States in a year impose a social cost of about $2.6 billion. The biggest chunk of the cost stems from the 415 people killed by the disease, each of whose lives the agency values at $5.4 million.
Health agencies prefer to measure the value of living one more year, rather than that of an entire life, on the not unreasonable assumption that we are all going to die anyway and all government action can do is push death back a bit, not prevent it. The most sophisticated analyses take into account the quality of each life saved, assuming that a year of life suffering an affliction or disability is worth less than a year in full health. This has led to the creation of a new unit of measurement: the quality-adjusted life year, known as QALY.
To decide whether to redesign or rebuild a road, for instance, the Department of Transportation values injuries along a scale: a minor injury costs 0.0002 percent of a statistical life; a critical injury is worth more than three quarters. The FDA estimates that the victim of a coronary disease loses thirteen years of life, on average, which is worth—to the victim—about $840,000.
These tools have become the standard in several countries to evaluate and shape government policies. In 2003, for instance, the economic analysis unit of Australia’s health department proposed changing warnings on packages of tobacco products. It based its analysis on the fact that it would save about four hundred lives a year—which added up to a benefit of some 250 million Australian dollars a year—at an annual cost of about 130 million Australian dollars in lost excise taxes because Australians would smoke less.
These techniques provide a new measure of the wealth of nations. Economists at the University of Chicago added up the value to Americans of their increased life expectancy to conclude that increases in longevity between 1970 and 2000 added $3.2 trillion per year to the national wealth of the United States.
DO WE KNOW HOW MUCH WE ARE WORTH?
Despite its democratic appeal, this metric too is troubling. Using people’s own choices to determine the price we are willing to pay to save lives could lead society down some uncomfortable paths. Given the choice between pulling a dozen thirty-year-olds from a blazing fire or saving a dozen sixty-year-olds instead, it might be an odd choice to save the seniors from the point of view of social welfare. For starters, saving the young would save many more years of life than the old.
Cass Sunstein, the legal scholar from the University of Chicago who currently heads the White House’s Office of Information and Regulatory Affairs, which oversees these valuations, has proposed focusing government policies on saving years of life rather than lives, even though that would discount the value of seniors. “A program that saves younger people is better, along every dimension, than an otherwise identical program that saves older people,” he wrote. But just try making this case to somebody over sixty-five. Not only do they value their remaining lives as much as the young do, they have enormous political clout and will vote against anyone who says otherwise.
In 2002 the Environmental Protection Agency introduced a novel element into its analysis of how the Clear Skies Act—which regulated soot emissions from power plants—reduced premature mortality. Rather than evaluate every life saved at $6.1 million, as it had done in the past, it applied an age discount—implying that the life of somebody over seventy was worth only 67 percent of the life of a younger person.
The backlash by the American Association of Retired People and others was so fierce that EPA administrator Christine Todd Whitman was forced to abandon the approach. “The senior discount factor has been stopped,” she said. “It has been discontinued. E.P.A. will not, I repeat, not, use an age-adjusted analysis in decision making.” When the EPA again adjusted the value of life by age to measure the benefits of regulating exhaust from diesel engines, it bent over backward to please seniors. To come up with a system that valued the life of retirees the same as that of younger Americans, it had to price each year of remaining life expectancy at $434,000 for people over the age of sixty-five and only $172,000 for those younger.
The risks of relying on people’s choices to put a value on their lives can be seen in opinion polls showing Americans believe a life saved from a terrorist attack is worth two lives saved from a natural disaster. This bias may explain the indifference with which the United States government responded to hurricane Katrina in New Orleans in 2005, compared with the massive investment to avoid a repeat of the terrorist attacks against the United States in 2001.
Above all, these valuations perpetuate economic inequities. Schelling cautioned about this: “Just as the rich will pay more to avoid wasting an hour in traffic or five hours on a train, it is worth more to them to reduce the risk of their own death or the death of somebody they care about. It is worth more because they are richer than the poor.” The fact that the Titanic didn’t have enough lifeboats for all passengers would be reasonable under this line of thinking. The distribution of deaths—37 percent of first-class passengers, 57 percent of those in second class, and 75 percent of those traveling steerage—would be uncontroversial.
Yet if people thought the compensation by the 9/11 fund was unfair, what would they think of directing lifesaving government programs to the rich simply because they have more resources to invest in their own health and safety and are less willing to take risky jobs than the poor? This system ignores the fact that while the rich are willing to pay more to protect life and limb than the poor, the poor
value each dollar they have more than the rich. For a family that subsists on the fringe of poverty, an investment in a doctor’s visit could signal a lower tolerance for risk than all the pricey medical treatments of a corporate executive.
This method of self-valuation ignores the fact that people’s choices are not always freely chosen. If one were to measure people’s worth by their willingness to trade money for safety in the workplace, one would conclude that blacks believe they are cheaper than whites. They suffer more workplace fatalities in almost every industry and the extra wages they get for the extra risk are lower. One study concluded from this data that a white blue-collar worker’s life was worth $16.8 million, more than twice the value of that of a similar black worker. But we would have good reason to mistrust this valuation. Rather than reflecting a higher appetite for risk among blacks, it suggests that blacks have fewer job opportunities and so must settle for less.
By this metric, life in the poor world is very cheap. A 2005 study based on wages of Mexico City workers valued their lives at a maximum of $325,000. A 2005 study of what Chinese were willing to pay to avoid sickness or death from air pollution calculated that, at the official exchange rate, the median value of a statistical life could be as little as $4,000. This kind of valuation would lead to some untenable decisions about allocating resources across the world. Representatives of developing countries were outraged when a report of the Intergovernmental Panel on Climate Change in 1995 assessed the impact of global warming valuing statistical lives at $150,000 in poor countries and at $1.5 million in rich ones. Did this mean, they asked, that protecting people in poor countries from climate change provided less bang for the buck than protecting citizens of the rich world? So the panel backtracked, threw out its sophisticated economic analysis, and settled for the politically tenable notion that we are all worth the same, $1 million whether in rich countries or poor.
THE PRICE OF HEALTH
Cervical cancer is one of Mexico’s most lethal ones, killing 8 out of every 100,000 women every year. When GlaxoSmithKline and Merck Sharp & Dohme developed vaccines against the human papillomavirus, the leading cause of cancer of the cervix, Mexico was among the first countries to consider a program of universal vaccination for twelve-year-old girls.
It appeared to be extremely cost-effective. At some 440 pesos a dose, about the price quoted by Glaxo, offering a three-dose course to 80 percent of girls would cost just over 42,000 pesos per each healthy year of life that would be saved by the procedure, according to a 2008 analysis by researchers at the Mexican national health department. This is less than half Mexico’s gross national product per capita, and thus considered a good investment by experts at the World Health Organization.
But because Mexico is a relatively poor country, these findings produced a conundrum. A universal vaccination plan would cost about 1.4 billion pesos, almost as much as the entire budget for the government’s series of seven mandatory childhood vaccines. So the government took a Solomonic approach. It decided to offer the vaccination program only in poor areas of the country with a relatively high incidence of cervical cancer, which would cut the total outlay by more than half. More controversially, rather than provide the three doses within a period of six to eight months, as suggested by the pharmaceutical companies, the health ministry chose to provide the third dose only after five years.
“All our studies of the vaccines’ effectiveness were based on a plan of three doses—the third must be taken eight months after the first,” said Miguel Cashat-Cruz, the head of vaccines for Merck’s Mexican subsidiary. But Eduardo Lazcano-Ponce, a researcher at the National Institute of Public Health, said pecuniary interests drove pharmaceutical companies’ protests. “They say it won’t be useful, but they make no effort to reduce the price of the vaccine.”
The provision of health is awash in such cost-benefit calculations, as governments allocate limited budgets among new drugs and therapies streaming out of the world’s labs. In 2005 New Zealand’s Ministry of Health declined to fund a universal vaccination program against pneumococcal disease that would cost about 120,000 New Zealand dollars for each year of life gained in good health by the inoculation. It approved funding two years later, when the manufacturer proved that a program could be carried out for 25,000 New Zealand dollars per year of life.
The British government, which since World War II has provided health coverage for its citizens free of charge, has been the trail-blazer in systematically applying cost-benefit analysis to its expenditures on health. It started in the late 1990s, when the erectile dysfunction drug Viagra appeared on the market and officials at the National Health Service worried that the new wonder drug would bust the government’s health budget.
These days, the National Institute for Health and Clinical Excellence—or NICE—follows a standard set of guidelines to determine which drugs and procedures will be covered. Anything that costs less than £20,000 per year of good-quality life is approved. And except in very rare cases, the health service will not pay more than £30,000 per year of added life. The practice has spread around the world. The Canadian Agency for Drugs and Technologies in Health makes recommendations to the nation’s provincial drug plans on the cost-effectiveness of new drugs. From Australia to the Netherlands to Portugal, economic evaluations are mandatory for the approval of treatments.
The World Health Organization has developed general thresholds for countries around the world. It deems treatments very cost-effective when each year gained in good health costs less than the nation’s economic product per person, cost-effective when such a quality-adjusted life year costs one to three years of GDP per capita, and not worth the investment when it costs more than that. This metric would suggest that governments in countries like Argentina, Brazil, or Mexico should afford treatments if they cost less than $29,300 per QALY, in 2009. Their poorer neighbors, like Bolivia and Ecuador, should only afford interventions costing up to $13,800. The rich countries in the hemisphere, the United States and Canada, should be willing to invest up to $120,000 per year of good life gained.
Yet decisions based on cost-benefit calculations are never easy. In 2008 it seemed straightforward for NICE to reject paying for Sutent, Pfizer’s newfangled pill for kidney cancer that cost about £3,139 for a six-week regimen and usually extended life by less than a year. This meant it generally cost more than the agency’s £30,000 limit per “quality adjusted” year of additional life.
But the storm of public protest that ensued was deafening. A British tabloid, the Daily Mail, called it a “death sentence” for those suffering kidney cancer. And NICE backtracked, approving Sutent for some patients on the grounds that “although it might be at the upper end of any plausible valuation of such benefits, in this case there was a significant step-change in treating a disease for which there is only one current standard first-line treatment option.” The investment, in fact, would not be too large. Fewer than seven thousand Britons suffered this kidney cancer and Sutent would be suitable for only about half of those. Moreover, Pfizer also offered to pick up the tab for the first six weeks.
IT’S HARD TO overcome the belief that we are entitled to all the health care we need. During President Obama’s push to reform American health insurance, the White House reminded its allies never to use the dreaded word “rationing.” Democrat Max Baucus, who as chair of the Senate Finance Committee was one of the leading legislators crafting the bill, said: “There is no rationing of health care at all” in the proposed reform.
Of course, rationing is pervasive across the American health-care system. For starters, in 2009, 46 million Americans lacked health insurance. A study of victims of severe traffic accidents who landed in hospital emergency rooms in Wisconsin found that those without health insurance received 20 percent less care than the insured. They were kept only 6.4 days in hospital, on average, compared to 9.2 days for those with insurance. And hospitals spent on average $3,300 more on the insured than the uninsured. The uninsured, of course, were 4
0 percent more likely to die. The study found that if hospitals had treated the uninsured equally to the insured, each life saved would have cost $220,000, which amounts to about $11,000 per additional year. This is a bargain compared to Sutent; well within the limits imposed by Britain’s NICE.
Nonetheless, Obama’s political tactics made sense in the face of accusations from American conservatives that the government wanted to take over the decision of who lived and who died. The president got a foretaste of the opposition’s tactics when a White House proposal to study the relative effectiveness of new drugs and therapies, to decide which were most worthwhile, drew a furious reaction. An editorial in the Washington Times compared the proposal to a program called Aktion T-4 put in place in Nazi Germany to euthanize elderly people with incurable diseases, critically disabled children, and other unproductive types.
The rhetoric was effective because it tapped into the belief that life is priceless, that when it comes to matters of life and death we should spare no expense. As Joy Hardy, the wife of a British cancer victim who was temporarily denied Sutent by the NHS, said: “Everybody should be allowed to have as much life as they can.” This belief has burdened the United States with a uniquely inefficient health-care system. In 2009 health care consumed 18 percent of the nation’s income. And without any mechanism to ensure cost-effectiveness, it could swallow more than a fifth of the economy by 2020. Yet all this spending does not buy better health.
Somehow Americans have a lower life expectancy at birth than the Japanese, French, Spanish, Swiss, Australians, Icelanders, Swedes, Italians, Canadians, Finns, Norwegians, Austrians, Belgians, Germans, Greeks, Koreans, Dutch, Portuguese, New Zealanders, Luxembourgeois, Irish, British, and Danes. We achieve this while spending, collectively, much more on health care than any of them: about $6,714 a year for every American. In Japan, by contrast, health-related expenditures amount to about $2,600 per head, and in Portugal to only $2,000. What’s more, allocating health care by patients’ ability to pay rather than an analysis of the costs and benefits of treatment ensures that the American distribution of health, and life, is as inequitable as one can get in the industrial world. More than half of Americans who earn less than the average income report not being able to get needed health care due to its cost. This compares to fewer than 10 percent of the British or the Dutch.
The Price of Everything Page 6